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Alberta Moves Forward with Climate Change Initiatives in Budget 2016

As part of its strategy to kick-start the economy, the Alberta government has earmarked almost $8.5 billion in its latest budget to build and modernize major public infrastructure. Released on April 14, 2016, Budget 2016 allocates $634 million to various climate change initiatives in addition to funds for roads and bridges, flood recovery and municipal infrastructure support.

As reported in our earlier blog, Alberta is developing a new strategy on climate change based on recommendations put forward by the Climate Change Advisory Panel. Details of the final strategy are still being developed, but four key areas have been identified for action:

phasing out emissions from coal-generated electricity and developing more renewable energy;

implementing a new carbon price on greenhouse gas (GHG) emissions;

a legislated oil sands emission limit; and

employing a new methane emission reduction plan.

Budget 2016 represents a key step in the implementation of Alberta’s Climate Leadership Plan and outlines how revenue generated by Alberta’s new carbon levy will be used to reduce GHG emissions. Alberta’s carbon pricing strategy will be implemented partly through a new carbon levy on transportation and heating fuels. The carbon pricing model also includes a new performance standards approach for Large Industrial Emitters. The Alberta government has indicated that these two mechanisms will cover 78-90% of Alberta’s emissions. Budget 2016 also provides for carbon rebates and small business tax cuts to help households and businesses adjust to the new carbon levy.

Over the next 5 years, the Alberta government anticipates that the carbon pricing regime will generate $9.6 billion, which will be reinvested in the provincial economy. In particular, $6.2 billion will be spent on diversifying the energy economy:

$3.4 billion for large scale renewable energy, bioenergy and technology;

$2.2 billion for green infrastructure like transit; and

$645 million for Energy Efficiency Alberta, a new provincial agency that will support increasing energy efficiency for homes and businesses.

The remaining $3.4 billion will provide support for households, businesses and communities adjust to the carbon price, including:

$2.3 billion for consumer rebates to help lower- and middle-income families;

$865 million to pay for a cut in the small business tax rate from 3% to 2%; and

$195 million to assist coal communities, Indigenous communities and others with adjustment.

Carbon Levy

As noted above, the carbon levy will be included in the price of all fuels that produce GHG emissions when combusted. These include transportation and heating fuels such as diesel, gasoline, natural gas and propane. However it will not apply directly to consumer purchases of electricity. Starting January 1, 2017, the carbon levy will be applied to fuels at a rate of $20/tonne. In 2018, the levy will increase to $30/tonne. The rates for each type of fuel are set out in the table below:

While the Climate Change Advisory Panel had recommended that the carbon price should increase over time, the government will hold the price at $30/tonne until such time as the economy is stronger and the actions of other jurisdictions, including the federal government, are more clear.

The following exemptions will apply:

the use of heating fuels on sites subject to the Specified Gas Emitters Regulations (SGER) or performance standards regime;

natural gas produced and consumed on site by conventional oil and gas producers (until January 1, 2023);

industrial exemptions in cases where fuel is used in industrial processes but not combusted;

purchases of fuel on-reserve by eligible First Nations individuals and bands for personal and band use;

Large Industrial Emitters – those entities emitting 100,000 tonnes or more of GHG emissions – are currently required under the SGER to reduce their site-specific emissions intensity by 15% annually (this will increase to 20% per cent on January 1, 2017). Large Industrial Emitters will continue to be subject to the SGER framework until the end of 2017, when the province will transition to product and sector-based performance standards. It is anticipated that further details will be available after consultations with industry stakeholders.

On-site combustion in conventional oil and gas will be levied starting on January 1, 2023. In the meantime, efforts will be undertaken to reduce methane under the Alberta government’s new Joint Initiative on Methane Reduction and Verification.

Carbon Rebates and Small Businesses

As noted above, a rebate – the Climate Leadership Adjustment Rebate – will be available to help offset the costs of the carbon levy for lower- and middle-income Albertans. According to eh budget, 6 in 10 Alberta households will be eligible for the full rebate, and an additional 6% of households will receive a partial rebate. The rebate will provide up to $200 for an adult, $100 for a spouse, and $30 for each child under 18 in the household (up to a maximum of four children). The rebate will begin to phase out at $47,500 in net income for single Albertans, and $95,000 for couples and families. Small businesses in Alberta will also benefit from a reduction in the corporate income tax rate from 3% to 2% effective January 1, 2017.

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